Illinois is one of only three states that has an income tax but exempts all retirement income. And politicians, along with advocacy groups, have long pushed to keep it that way.

But amid the spiraling state budget and public pension crisis, even some anti-tax groups are open to giving the idea a closer look provided, they say, it is woven into a comprehensive and acceptable spending and taxing plan, a BGA Rescuing Illinois report finds.
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Like the Civic Federation, the more liberal Center for Tax and Budget Accountability is calling for a tax on retirement income above $50,000.

A budget reform proposal put forth by the group in September calls for taxing retirement income between $50,000 and $150,000 at a graduated rate, and retirement income above $150,000 at Illinois’ regular flat rate, currently 3.75 percent for individuals.

A temporary income tax increase to 5 percent expired in January 2015. The CTBA proposes increasing the overall rate to 4.75 or 5 percent. The Civic Federation also calls for a retroactive increase to 5 percent stretching back to January 1, 2016.

The CTBA report describes its plan to tax some retirement income as a graduated tax, with retirement income between $50,000-$75,000 taxed at 25 percent of whatever the regular income tax rate is at the time; income $75,000-$100,000 at 50 percent and income $100,000-$150,000 at 75 percent. The center estimates this structure at a 5 percent tax rate would mean $1.1 billion in extra revenue annually.

Illinois’s Constitution forbids a graduated (or progressive) tax, so it could be argued that the CTBA’s proposed retirement income tax would require a constitutional amendment, according to Dabrowski and others.

The Illinois Constitution has some really weird aspects to it. I don’t think this is all that weird.

The Illinois Constitution says the state can only have a flat income tax rate.

An attempt to change that failed this spring.

So, too, have efforts to reach a bipartisan compromise on a new state budget.

House Speaker Michael Madigan says he wants to raise more revenue —- to help balance the budget —- by taxing the rich.

“I have said for the last year and a half I’m prepared to negotiate with the governor to find the money to pay for those services. My first choice in finding money would be taxing the wealthy.”

Madigan says it’s possible even with Illinois’ flat-tax rule. He says it can be done through “exclusions and deductions.” For instance: raising the overall income tax rate but giving low-income workers a break.

Bankruptcy Code Amendments Should Now be Illinois’ Imperative – WP Original

In the dozens of articles you probably read in the last few months about our fiscal crisis, what’s the universal omission? A solution.

No analyst, officeholder or commentator has offered one. No combination of survivable tax increases and spending cuts can solve Illinois’ consolidated state and local fiscal insolvency. There is none — unless debt, including pension debt, is cut (and economic growth restored).

Maybe we can kick the can for a few more years. Pensions assets can be bled down to nothing. Maybe there’s a feasible solution outside of bankruptcy for some of the individual, insolvent municipalities that overlap parts of Illinois. But, particularly for the Chicago area, the numbers, taken as a whole, are insurmountable, which we have documented inside and out on this site. It’s just the math, which we won’t repeat now. Chicago, most importantly, will go bankrupt.

Don’t be misled by the straw man argument that bankruptcy is a horrible option fraught with unknowns. Of course it is. The issue is whether it’s avoidable. Unless unfunded pension liabilities — which are entirely for services already rendered — are reduced, no sustainable fiscal path forward is open. A state constitutional amendment is possible, but it would be subject to credible challenge under the United States Constitution’s Contracts Clause and Ex Post Facto Clause, and would be litigated for years.

That leaves only bankruptcy, which trumps the Illinois constitutional protection of state and local pension benefits. The Illinois General Assembly has not yet authorized bankruptcy for municipalities, but it surely will have to, eventually, as more municipalities demand it.